Local banks reject S&P’s analogy

Australian banks have dismissed comments from ratings agency Standard & Poor’s comparing the country’s banking system to Spain’s.

“You need to ask the S&P guy why he feels the need to deliver a stronger message," said Australian Bankers Association chief executive Steven Münchenberg. “If it’s an attempt to raise the heat I don’t know why they’d do it. I certainly don’t think the Spanish experience is particularly enlightening to the issues we’ve got here."

“The [Spanish] government needed to provide support to the banks, it had to shore up growth in the economy and its debt levels more than doubled. We can see that happening in Australia’s case," Mr Curry said.

Mr Münchenberg said he agreed with Mr Curry’s view that vulnerability in the Australian banking system stemmed from high private sector debt and a high reliance on offshore funding.

But he said there were vast differences between Australia’s position and Spain’s before the global financial crisis.

“Spain clearly had a housing bubble in the run-up to 2008. The big difference in Australia is that the housing boom wasn’t met with a construction boom. We’ve got the opposite problem – various figures say we don’t build enough houses."

Bank of America Merrill Lynch chief economist, Australia and New Zealand, Saul Eslake, said a housing crisis would be required before the banking system called on the government for bail-outs in the way that Spain’s banks had.